Summary of BB130: Funding for Scottrade Center Upgrades

Tweet about this on TwitterShare on Facebook80Share on Reddit22Share on LinkedIn0Print this pageEmail this to someone

Today I am introducing BB130, a bill that changes the funding mechanism for the upgrades of the Scottrade Center before the ways and means committee. Last session, we passed Ordinance 70473, which essentially authorized a financing agreement for the rehabilitation of the property located at 1401 Clark Avenue, aka the Scottrade Center which result in the issuance of bonds to be repaid with General Revenue.

What BB130 does is replace General Revenue with a Fund set up to collect a Modest Ticket Fee.

 

At the Board of Alderman, we are often rushed to get through bills. We have very little staff. Certainly not adequate staffing for a serious deliberative body. Its hard to do our due diligence under those circumstances.

Last session, in our rushed deliberations, we didn’t take a look at very important facts as they related to Ordinance 70473. Most importantly: the lease that describes the relationship between the City who owns the land and the lessee, Kiel Partnership Group and the obligations set out therein.

Here’s what the lease says:

Lessee (KPG) shall perform … all obligations connected with arising out of owning, occupying, managing or using the Kiel Site or any part thereof, including, without limitation … property management fees and expenses, all sums for maintenance, repair and replacement of improvements, insurance premiums, utility charges and expenses, and … Insofar as the performance by the Lessee (KPG) of its covenants and obligations pursuant to this Amended Lease shall impose any financial obligation liability upon the Lessor (City) ot otherwise provided for herein to be paid, performed or satisfied by Lessor, said amounts, if not otherwise paid, discharged or satisfied by Lessee (KPG), shall constitute additional rent.

It essentially states that the lessee (KPG) is responsible for maintenance and replacement of improvements.. And any additional money spent by the City will result in additional rent.

This was not properly described to us when we passed Ordinance 70473. Without getting too far into the weeds on that, what’s important to note is that we didn’t have pertinent information, we had a misunderstanding of the contents of the lease and we now have some clarity. And with that clarity, we now understand that what Ordinance 70473 does is essentially shifts the burden of upgrades of the facility from the Kiel Group to the City.

How do we know that? Let’s look at what Ordinance 70473 is authorizing.

Here are some excerpts from the project list:
Replacement of the refrigerant piping for the rink: $6.8M
New, Replacement Scoreboard: $1.5M
New, Replacement Administrative Offices: $2.4M
Something called “Hot Water:” $2.1M
Restroom Renovations: $2.7M
Upgrade Retail Store: $200k
Renovate Concessions: $3.2M
Lighting Upgrades: $600k
Sound System Upgrades: $2.9M

These are millions of dollars of upgrades and replacement of improvements. Which is very specifically described in the lease. It could not be more clear. Replacement of improvements, general maintenance is the responsibility of the lessee, not the City. And this is typical of a net lease. In fact, a tenant is typically responsible for all maintenance in a commercial lease.

The shift in obligation, from the Kiel Group, who enjoys all the revenue, to the City, places the burden on the entity who gets only a very small fraction of the sales tax generated here. We should remember that KPG pays $1 a year in rent, $0 per year in property taxes, the Amusement tax is rebated back to the ownership group entirely for the renovations of Peabody, and the Kiel Partnership Group, NOT the City, enjoys all proceeds from naming rights from this facility that we have been told the City owns.

The City gets none of the revenue, and just a fraction of the sales tax. In fact, of the sales tax generated, the City gets less than half. We get 3.63 cents of every dollar spent. 3.63 CENTS. The state, by comparison, gets 4.23%.

So we are shifting the burden from those who will gain most from these renovations to the entity who gets pennies on every dollar spent: The City. At a time when the City simply doesn’t have revenue to burn.

What BB130 does is shift that burden back, at least to some extent. With this bill, we will protect the general revenue that we rely on to provide vital city services and basic municipal obligations by assessing a modest fee on the people that USE Scottrade Center, rather than the entire city.

Why use this mechanism? First of all, Scottrade is a regional asset. Its serves not just the City of St. Louis, but the entire region. In fact, the vast majority of patrons to Scottrade don’t live in the city. Only 11% of hockey patrons live in the City, and worse, for other events, only 5% live in the City. In fact, more live in Illinois than live in St. Louis City.

Given the regional importance of this asset, we know that we need a regional solution to paying for it. The lawyer for the Blues, David Richardson, indicated last year that there had been talks with St. Louis County going back years about this project. And the implication, as I understood it, was that St. Louis County wasn’t going to play ball. And honestly, it would take us a very long time to develop that sort of solution under the current fractionated set of governments we have. A regional solution that goes beyond St. Louis County, including the Metro East, a bi-state taxing district: this would require an act of Congress.

We get it, we want to upgrade the facility sooner than that. We don’t want to lose events. And recognizing these regional solutions are all but impossible with our current government structure. Really the only way to impose a regional tax is to impose a fee on the people who use the facility.

The beauty of this solution is that there is already a “Facility Fee” assessed on tickets sold. This fee is $3.50, roughly 5% of the average ticket price. Currently the facility contributes to the profits of the Kiel group, but directing the Facility Fee into a fund specifically set aside for the upgrading of the facility rather than asking a cash-strapped city to pay for the upgrades makes perfect sense.

With $60M of annual sales, this ticket fee should generate about $3M annually, which coupled with the CID, would give us more than enough bonding capacity to fund Phase I. This income stream would make our Comptroller comfortable, she could issue the bonds, protect our credit rating and complete all requested upgrades.

I mention the credit rating because according to the S&P, the City faces a real risk in further downgrade of our credit rating if we do not do something about the use of general funds for the repayment of these bonds.

Here’s what S&P says:

We may lower the rating should budgetary performance and flexibility worsen, which could result if expenditure growth isn’t offset by budget reductions. In light of declining reserves, the negative rating risk posed by a possible weakening of budgetary performance has, in our view, increased.

I simply cannot imagine what we would cut from general revenue to begin to make these payments. And what’s worse, is that the payments start off small and grow exponentially. We kick the can so far down the road. Starting off at $1.5 and going up to $4.5. These payments are so far into the future, the last 6 of them totaling $27Million or about a quarter of the total payments, would be made AFTER THE LEASE EXPIRES in 2042! This is ludicrous. My 6 year old would be paying for that scoreboard until he was 37 years old.

Let’s look at what this bill doesn’t do, is it doesn’t STOP the renovations to the Scottrade Center. In fact, it provides for the entirety of Phase 1 outlined in Ordinance 70473. It just safeguards the City’s General Revenue in the process. And again, it shifts the burden back, and in accordance to the legal binding lease that is in effect. A lease which both sides have agreed to. A lease which clearly defines the responsibility of upkeep NOT as responsibility of the City, but of the KPG.

After all, somebody has to pay for the roads to get to the Scottrade Center, the lights to see where you’re going. And somebody has to pay the police officers that patrol the Scottrade when we have games. It’s the City who pays for these things. Should we really be expected to replace the bathroom inside the place, too?

(Visited 1,628 times, 43 visits today)
Tweet about this on TwitterShare on Facebook80Share on Reddit22Share on LinkedIn0Print this pageEmail this to someone
  • Pingback: County people might be right; A consolidation won’t save St. Louis – Inmost City()

  • Andrew Luther

    This city is so hopelessly lost. The treasurer is currently sitting on a slushfund of 30 million in parking revenue that has absolutely NO oversight… and yet here we all are arguing about funding an asset that actually brings revenues and people to the city. Priorities anyone? http://www.stltoday.com/opinion/editorial/editorial-st-louis-treasurer-controls-too-much-money-with-too/article_311354d0-82a1-561b-a914-92489ae3596d.html

    • jhoff1257

      I happen to agree with you on the issues with the Treasurer’s Office.

      Having said that the Scottrade revenues you speak of are largely pumped right back into the pockets of the ownership group who, again, pay no property tax, and only $1 in rent. I’d have no problem with the BOA leaving the original agreement in place if the Blues at least paid taxes and/or a reasonable amount in rent. Unfortunately that’s not the case. Yes, the parking revenue should be added to the general fund, without question. No argument from me there, but until that happens the city has to work with what they have.

  • John

    The City of St. Louis should not manage large venue leases like this, if this property maintenance funding information is just now coming to the forefront. Where is the accountability between City legal, Aldermen, the Mayor, the lessee? This is very disappointing and concerning for all residents and constituents. Pathetic! Tired of excuses!

    If the City alderman are often “rushed to get through bills,” it is time to fix the problems with the process NOW.

  • Andrew Luther

    So basically, Cara is telling businesses that they should not trust the Board of Alderman. The BOA passed the financing for the improvements months ago. Now, Cara thinks it’s simply alright to tear up that prior agreement and leave the Blues with the bill after work has already begun? Crazy. Only in St. Louis. This city is a J. O. K. E.

    • Tony Flores

      it’s not like that at all. the current funding agreement takes from general revenue, which we are already 20MM in the hole and lacking enough revenue generation to save the credit rating. What this will do is charge an extra 5% tax on tickets to pay for renovations with out hurting city revenue. I am ok w/ paying 5% more for my tickets

    • jhoff1257

      Maybe if the business in question paid property taxes and more then $1 in rent we wouldn’t be having this discussion.

      Maybe if St. Louis and St. Clair Counties, where over 90% of Scottrade’s users come from, was kicking in some coin we wouldn’t be having this discussion.

      I agree that the optics on passing one bill and then turning around and changing it don’t look good, but at the end of the day the City faces a $17 million+ deficit in the next fiscal year. No general fund money should go to this. As a user (and non-City resident) of the building I have no problem paying a few extra bucks if it protects the City’s credit rating.

      If the City’s credit gets downgraded the city loses the ability to borrow money. If that happens how do you expect the city to borrow money to do anything else? How does the city pay off the estimated $105 million in debt this project will add to the city’s books if there’s no money available? That would be the real joke. Hate Cara all you want, her job is to protect the city’s finances whether you like it or not.

      • Andrew Luther

        I don’t care HOW bad the deal the BOA made with the Blues was. They made the deal. That should be the end of it. This sets a horrific precedent.

        • jhoff1257

          Good thing you’re not on the BOA then.

          • Andrew Luther

            If funding approved by the BOA can suddenly be taken away, what exactly is the PURPOSE of the BOA?

          • Adam

            yeah because the BOA only exists to fund sports stadiums.

          • Cara

            The BOA simply authorizes financing packages. We don’t complete them. And this deal is still not complete, not without the Comptroller.

        • Adam

          it wasn’t a “bad deal”. IT WAS ILLEGAL. it violated the lease agreement and possibly the MO constitution.

          • Nick

            The lawsuit hasn’t made its way through the courts yet…so it’s premature to call it unconstitutional. Spencer’s lawyers will need to prove the City is giving money only to a private enterprise, which will be difficult to prove given that the City owns Scottrade.

          • Adam

            Right. That’s why I said “possibly”. The deal did, however, violate the lease agreement. And while it may have been irresponsible for the BOA not to have a copy of the lease on hand, they tried for MONTHS to obtain a copy. The Blues ownership knew exactly what it was doing.

          • Nick

            Sorry, didn’t see your qualifier there. I agree the deal that’s been struck isn’t the best for the City. Where I’m miffed is Spencer’s excuse of ‘well, sorry but we’re understaffed, we weren’t able to read up on everything in time.’ Really? Well, perhaps you should all budget your time a little better then. Is the Scottrade deal not one of the most pressing issues facing the City? Perhaps you should all put your own individual wards’ pet projects on the backburner until you get a solid deal done? Maybe show up to a few less political handshakings? You say it took months for the BOA to get a copy of the lease….are they not the body that created the lease in the first place? How do they not have copies?!? Spencer’s story just sounds like another politician’s bs line for why her governing body can’t put a decent deal together…when the reality is they all just struck SOME deal so they could go back to their voters and say ‘look, we did something…don’t worry too much about the fine print’…never minding the fact that it’s actually a crap deal. Kudos to Spencer for saying so after the fact, but it looks like it’s too little too late.

          • Adam

            not arguing that it was poorly handled but let’s be realistic here. alderman is a part-time position–they make ~$30K per year–and are tasked with too much micromanagement. they are also not required to have any legal expertise and share a single attorney among them. i think “budget your time better” is unrealistic. i also fail to see how it’s “too little too late” if out of this we get a reasonable funding scheme for the upgrades, the city retains a respectable credit rating, and we don’t dump general funds directly into the Blues owners’ pockets. do we need city government reform? absolutely. is that reason to allow businesses to pillage the city’s general funds and not hold them accountable for attempting to break lease agreements? nope.

          • Nick

            So we should excuse the BOA because they may not be educated enough in the law to do their jobs properly? Also, the City isn’t dumping general funds into owners pockets. It’s not like they’re taking general revenue money home with them. These improvements are more about getting the building up to modern standards to bring NCAA tournament games into StL as well as convincing Blues ownership not to want to leave StL. You can fault the Blues for acting in their own self-interests all you want….but that’s what business owners do. You can either complain about the realities of the world, or accept them as is and deal with them appropriately.

          • Adam

            that’s simply not true. You can also do what the board—motivated by alderman Spencer—are now doing. It’s actually happening. For realz. Sorry, but I disagree that the BOA is somehow fully accountable but the Blues get a pass for attempting to ditch their legal, contractual obligations b/c “business”. They can and are being held accountable.

          • Nick

            Ok, you can believe whatever you want. The reality is, the Blues ownership’s job is to manage a hockey team. It is not their job to manage the City’s finances. It IS the BOA’s job to do so. And if the BOA agrees to alter the terms of the original agreement to the benefit of Blues ownership, that’s on the BOA. We’ll see how this court case turns out.

          • Adam

            The reality is, the “original agreement” is the lease, which is legally binding. The BOA’s financing authorization is not until the comptroller signs off. Don’t know what else to tell you.

          • Nick

            The comptroller is refusing to sign an agreement that she is legally bound to sign because the ACTUAL authority, the BOA, already approved the agreement. Hence the original lawsuit from the Blues against the city to force her to sign.

            Also, leases and contracts are altered and changed every day in the business world.

          • Adam

            The comptroller is sworn to protect the city’s financial well being. She is not obligated to follow the BOA’s order when those orders conflict with that duty. Again, the BOA’s authorization is not a legal contract in and of itself. Moreover, amending a lease is a formal process. The BOA’s authorization of funds was not a change to the existing lease agreement.

            There’s really no more to be said. I don’t feel like arguing for the sake of arguing. Later.

          • Cara

            I worded it this way for the benefit of my colleagues to whom I was speaking. Honestly, I agree that we shouldn’t have voted on it without pertinent information. Nor should the business requesting the tax dolllars have mischaracterized the lease and refused to present it during deliberations. Both sides were sloppy, both sides were to blame. Let’s get passed that. The board bill we passed simply authorizes a financing package. It still is not a done deal, the bonds have not been signed. The bill presented today provides a path forward.

          • jhoff1257

            The way I understand it the City only holds bare title to the land. That’s why the city has no say over what goes on in that building and why the Blues collect all the profits.

          • Nick

            Well, obviously the City has SOME say over what goes on in that building, as the BOA struck the ordinance that’s the discussion of this thread.

          • jhoff1257

            True. But that didn’t change any of the renovation plans. The Blues simply took out loans themselves…as they should be doing for the whole project.

      • Adam

        He doesn’t care because sports.

    • By that logic they should have stuck to the terms of the original lease when the Blues ownership proposed to “tear up that prior agreement” and leave the City of St. Louis with the bill.

  • Tony Flores

    despite my mega loathing of Ald. Spencer, i like this bill as a city resident and currently 10yr Blues STH. I am ok w/ paying an extra 5% (which equates to about $75 per year for me if it means saving the general revenue fund from being used on things other than public service. Additionally, the possibility of funding a multi use soccer stadium is still alive, following a similar model on how Nashville may pay for theirs (paid by people who will use the facility. I only wish we didn’t have to wait until August 2018 to vote on the matter.

    My only concern, and after reading the bill, what is the contingency if revenue falls below the 3MM from a 5% tax and 1,2 MM on CID/TDD/Sales Tax etc.

    • Andrew Luther
      • Tony Flores

        they also have more revenue, as they are in Davidson county, and the Nashville bid uses stadium taxes, sales taxes, ticket taxes, entertainment taxes, rent on the venue to pay the bonds. The city is only committing 20MM in public money…which they can afford. The city is going to raise 225MM in bonds, but those will be paid off by the stadium itself. Essentially, that is what BB130 will do.

        • jhoff1257

          It’s also worth mentioning that Nashville and Davidson County consolidated into a unified government (Metro) which makes it much easier to pull the finances together for large projects like this one. Metro St. Louis is too busy doling out money for Wal Marts to move from St. Ann to Bridgeton to focus on anything truly transformative. People like Andrew and others can continue to shit all over the city but at the end of the day the entire region and it’s chronic fragmentation is what’s really creating problems like this one. How is the poorest city in the region, that makes up only 1/10th of said region, with 30% of its residents under the poverty line supposed to pay for all this shit?

          • Tony Flores

            precisely, i go to Indy 3x per year for the Marching arts, and I am floored at how they can have so many nice things and we cant have any because of our fractured region. I would love to have a UNIGOV setup here where we can be truly regional. there is no good reason why we cant do the same.

          • jhoff1257

            I don’t know that I’d agree that we can’t have any nice things. Culturally St. Louis and its attractions and historic neighborhoods far outpace Indy. But yes, many of their recent successes are due in part to their consolidated government (which was done forcefully by the State I might add). We have many reasons here at home as to why some sort of consolidation is a good idea. Think about some of the things we do pretty well. The Zoo, Museums, MoBot, Great Rivers Greenway, MSD (to an extent), MetroLink, and a few others. All of these are regional (or mostly city/county) successes that everyone pays into with amazing benefits and results. There’s no reason not to take it further.

    • Cara

      Appreciate the rational approach to this bill, despite the mega loathing.

      • Tony Flores

        i pay 1654/season (44 games…41 regular season, 3 pre-season) a 5% increase would be all of ~$82…or $1.88/game, i can afford an extra 1.88 per game

        • Nick

          That math assumes the number of ticket purchases are constant. When the Blues aren’t doing well, fewer people will go to games. Moreover, basic economics tells you when prices go up, ticket sales will fall. In reality, the tax will need to be greater than 5% to maintain $3 mil in extra revenue.

          • Tony Flores

            That number of 5% on 60 million also includes concerts, other sports, wrestling, etc. Plus the revenue on the new theatre boxes who help as well. But to your point, as well, if annual revenue comes up short…where does the shortfall even up with? If 4.2 million isn’t raised, where will the fund make up the slack?